Your pension could now buy a Buy to Let property in Solihull

In a recent article, I mentioned that pension rules are changing this April. It certainly created a few emails, with people asking questions about it. Therefore, this week, I want to look a little deeper into the subject of your pension and the Solihull property market. George Osborne, in last years’ Budget, announced pension reforms that have now come in to effect, which will give people with pensions unprecedented access to their pension pot and the freedom to look for alternatives. In a nutshell, after the 6th of April, anyone aged over 55 will be allowed to withdraw all or part of their pension pot and spend it as they wish. Until now, you were allowed to take out a quarter of it and were forced to buy an annuity policy with the rest.

However, there are always two sides to a story; good and bad. Let me tell you the bad news first. There are some hefty tax implications by taking money from your pension pot. As before, as per the old rules, the first 25% can still be withdrawn from the pension pot tax free but, here is the sting in the tail, if you take more than a quarter of your pot (25%), anything above that initial 25% level will be taxed as income. So if you took the whole lot out, the first 25% will be tax free but the remaining 75% will be taxed at your income tax rate of 20%, 40% (or even 45% if you earn over £150,000 a year) .

.. and now the good news!

Under the old scheme, if you bought an annuity, when you died your annuity normally died as well. You would have no asset to pass on to your family.  But, by taking a hit in income tax now,  by purchasing a property, you could buy an asset that you can pass on to your family when you die! (Or the cats home if they aren’t nice to you!). Evidently there are some risks involved, however - according to the Office of National Statistics, the life expectancy of a 65 year old male in Solihull is 19 years and 2 months (its only 17years 9 months in Central Birmingham) and if we were to roll the clock back 19 years 2 months to January 1996, property values in Solihull have risen by 176.9% to today… so you wouldn’t have had that with your pension!

So, where next? It totally depends which strategy you are going to look at, one strategy is to look to achieve relatively small rental returns (ie low yields) in an up market area which has decent capital growth or, alternatively, another strategy is to buy properties in not so good areas known to produce a high returns (ie high yields) but low capital growth (ie how much the value of the property goes up). Now, I am not financial advisor, so cannot offer financial advice on what the best thing for you with your pension is. However, I can share my knowledge and experience of the Solihull property market, what to buy, what not to buy and where to buy etc etc.